MARGINAL ANALYSIS. This example problem goes over the degree of comfortexperienced at different levels of clean water. The different peso value amountsare shown for every 20% increase in clean water. We want to find the optimumamount of clean water that we should have in this area, and it is important toremember that there is an optimal amount of pollution. Having 100% clean wateris probably never going to be the solution.As we would expect, the more clean water we have in our economy, the higher thebenefit we receive (we prefer clean water over dirty water). However, as weproduce (or clean) more of the clean water we also incur a cost. As more cleanwater is present, the higher our costs. Note that benefits here is the same as utility.% of Clean WaterTotal Benefits Total Cost0%20%501004540%8560%1559080%160120100%180155Find the MC and MB. At what % of Clean Water do we have the best option tobe adopted?

As the wants and desires of the individuals in the economy are unlimited, but the resources…

Answered: MARGINAL ANALYSIS. This example problem…

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter20: The Problem Of Adverse Selection Moral Hazard

Section: Chapter Questions

Problem 3MC

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